EXHIBIT 10.27.1
SETTLEMENT AGREEMENT
OCTOBER 2, 1997
The undersigned, Longview Fibre Company ("Fibre") and Cascade Natural
Gas Corporation ("Cascade"), are parties to the Agreement for Peaking Gas
Service dated as of March 22, 1991 ("PGS Agreement"). The parties have
disagreed over the amount properly payable by Cascade to Fibre for service under
the PGS Agreement for the period beginning October 1, 1996.
In the interest of compromise and settlement, the parties have entered
into this Settlement Agreement to resolve their differences without need for
arbitration or litigation. This Settlement Agreement is a compromise reached
between the parties after negotiation relating to pricing to the service
rendered and to be rendered by Fibre to Cascade under the PGS Agreement. The
applicable period of agreement for the PGS Fee is from October 1996, to
September 30, 2001.
The parties agree as follows:
1. The settlement proposal of Fibre to Cascade contained in its
September 4, 1997, letter, a copy of which is attached hereto as Exhibit A and
incorporated herein by this reference, is agreed to by the parties with one
correction. On page 2, next to last paragraph, the ending time for the reduced
PGS fee is to be the Contract Year October 2000 to September 2001. This
correction is noted on Exhibit A.
2. In order to implement this agreement, the PGS Agreement will be
amended in the form attached as Exhibit B.
This Settlement Agreement is entered into as of the date first set
forth above.
LONGVIEW FIBRE COMPANY CASCADE NATURAL GAS
CORPORATION
By
------------------------
Its By
--------------------- ------------------------------
King X. Xxxxx
Vice President - Gas Supply
AMENDMENT NO. 3 TO AGREEMENT FOR
PEAKING GAS SERVICE (PGS)
OCTOBER 2, 1997
This Amendment No. 3 is dated as of October 2, 1997, by and between
Cascade Natural Gas Corporation ("Cascade") and Longview Fibre Company
("Longview").
WHEREAS, Cascade and Longview executed an Agreement For Peaking Gas
Service (PGS) ("Agreement") dated as of November 22, 1991, and
WHEREAS, Cascade and Longview desire to amend the Agreement,
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, it is agreed as follows:
1. Section 4 of the Agreement shall be amended to add the following:
PROVIDED, HOWEVER, that pursuant to a Settlement Agreement dated
October 2, 1997, the parties have agreed that the PGS Fee for the period
starting with the Contract Year October 1996 to September 1997, and ending with
the Contract Year October 2000 to September 2001, the PGS Fee shall be
$708,984.44 per year. The parties also agree to renegotiate the PGS Fee in good
faith in the event of a material gas and/or transportation rate increase with
respect to Cascade's Washington Water Power Storage Agreement.
As additional consideration for this Agreement, Cascade shall
provide Longview with the following fuel management services for
the remaining term of the Agreement:
a. an aggressive program, with daily consultations between
Cascade and Longview, to release any part of the 48,000 dt/day of
capacity on Northwest Pipeline for which Longview currently pays
the reservation fees and which is not needed by Longview, with the
proceeds from such releases going to Longview;
b. an aggressive program, with daily consultations between
Cascade and Longview, to resale any part of the 18,000 dt/day of
natural gas (or additional supplies purchased by Longview) which
Longview currently buys from Duke or other supplier and which is
not needed by Longview, with the revenue from
such resale going to Longview;
c. an aggressive program, with daily consultations between
Cascade and Longview, to purchase gas at locations agreed to by
Cascade and Longview and to have such gas delivered to Longview;
d. monthly reporting of the savings to Longview under the
above-stated programs; and
e. monthly balancing and reporting of all gas and
transportation activities related to Longview.
2. Capitalized terms used in this Amendment shall have the meanings
as defined in the Agreement.
3. Except as modified by the foregoing amendment, the Agreement, as
amended to date, shall remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
3 to be duly executed in counterparts by their duly authorized representatives
as of the date first above written.
CASCADE NATURAL GAS CORPORATION LONGVIEW FIBRE COMPANY
By By
---------------------------- -----------------------------
King X. Xxxxx Its
Vice President, Gas Supply ----------------
September 4, 1997
Xx. Xxxx Xxxxx PRIVILEGED AND
Vice President, Gas Supply CONFIDENTIAL;
Cascade Natural Gas Corporation FOR SETTLEMENT PURPOSES
000 Xxxxxxxx Xxxxxx Xxxxx XXXX
Xxxxxxx, XX 00000
Dear King:
This letter is in response to (1) the proposal of Cascade Natural Gas
("Cascade") to adjust the annual fee under the Agreement for Peaking Gas Service
("PGS") between Longview Fibre Company ("Fibre") and Cascade from $970,350.00 to
$708,894.44 beginning the October 1996 to September 1997 period, and (2) your
August 8 reply to our letter expressing concerns with your proposal.
At the outset, Fibre must respectfully point out that the storage service is not
comparable to the PGS. Although Cascade can change the scheduled quantity for
withdrawals from storage up to four times per day, Cascade can make up to 6
changes (initiating or terminating) and up to 12 changes (rate of taking) per
day under the PGS. Moreover, in order to effect delivery of the storage gas to
the city gate, Cascade must comply with the transportation nomination procedures
of Northwest, which in all cases do not assure that Cascade can arrange for
delivery of the storage gas on 4 hours' notice or change the rate of delivery of
the storage gas on 2 hours' notice as Cascade can under the PGS. The 4-hour and
2-hour notice provisions of the PGS are features that Fibre does not believe can
be duplicated by other alternative peaking services, especially not the storage
service obtained by Cascade.
Furthermore, Fibre respectfully disagrees with the methodology used in Cascade's
proposal. Under the Agreement for PGS, the annual fee is adjusted "to ensure
the PGS fee is COMPARABLE to the least cost alternative sources of peaking
service reasonably available to Cascade." As set forth in detail below, Fibre
does
not believe that the $708,894.44 figure proposed by Cascade represents a
comparable level of the full costs to Cascade for the storage service received
through Washington Water Power.
First, once Cascade withdraws 192,000 dekatherms of its gas in storage, Cascade
can no longer receive 15, 000 dt/day of gas as it does under the PGS. To adjust
the features of the storage service to make them comparable to the PGS, Cascade
would have to either (1) obtain 405,000 additional dekatherms of annual storage
service, or (2) inject quantities into storage during the winter season. Fibre
believes that the first option would increase Cascade's storage costs by at
least $588,912.00 per year, while the second option would increase the costs by
at least $229,608.00 per year.
Second, under the storage service, Cascade incurs a cost of carrying the gas
held in storage until it is delivered. Fibre calculates this cost to be at
least $43,815.67 per year.
Third, Fibre believes that the cost to Cascade of the fuel charges for storage
withdrawals and in transporting gas from storage were omitted. Fibre calculates
these charges to be at least $23,066.44 per year.
Fourth, Cascade did not calculate any costs for transporting gas to storage.
Fibre calculates this cost to be at least $172,339.07 per year.
If the costs referred to above are added, the full costs of the storage service
received by Cascade would be at least $1,273,324.90 per year:
OPTION A OPTION B
------------- -------------
Withdrawal Rate $588,912.00 $229,608.00
Adjustment
Carrying Cost of Gas 43,815.67 43,815.67
Transportation/Storage 23,066.44 23,066.44
Fuel Charges
Transportation In 172,339.07 172,339.07
Cascade's Storage Cost 804,495.76 804,495.76
Calculation
------------- -------------
Total $1,632,628.90 $1,273,324.90
DESPITE THE FOREGOING, WITHOUT PREJUDICE TO FIBRE'S POSITION IN ANY ARBITRATION
(AND OTHER POSSIBLE PROCEEDING) AND IN A GOOD FAITH EFFORT TO REACH SETTLEMENT
OF THIS MATTER, FIBRE MAKES THE FOLLOWING NON-SEVERABLE SETTLEMENT OFFER:
- the PGS fee would be reduced to $708,984.44 per year;
- the reduced PGS fee would be applicable starting with the contract year
October 1996 to September 1997 and ending for the contract year October
2001 to September 2002;
- amend the Peaking Gas Service Agreement to reflect the new five year firm
price with the option to renegotiate should gas and/or transportation rate
increase, affecting the agreement with Cascade's Washington Water Power
Storage Agreement; and
- Cascade would provide Fibre with the following fuel management services for
the remaining term of the Agreement for PGS:
- an aggressive program, with daily consultations between
Cascade and Fibre, to release any part of the 48,000
dt/day of capacity on Northwest Pipeline for which Fibre
currently pays the reservation fees and which is not
needed by Fibre, with the proceeds from such releases
going to Fibre;
- an aggressive program, with daily consultations between
Cascade and Fibre, to resale any part of the 18,000
dt/day of natural gas (or additional supplies purchased
by Fibre) which Fibre currently buys from Duke or other
supplier and which is not needed by Fibre, with the
revenue from such resale going to Fibre;
- an aggressive program, with daily consultations between Cascade and
Fibre, to purchase gas at locations agreed to by Cascade and Fibre and
to have such gas delivered to Fibre;
- monthly reporting of the savings to Fibre under the above-stated
programs; and
- monthly balancing and reporting of all gas and transportation
activities related to Fibre.
If Cascade agrees with this settlement offer, please prepare and forward the
appropriate documents. If you have any questions regarding the above, do not
hesitate to contact me.
Sincerely,
X. Xxxxx, Xx.
Purchasing Manager
jr
cc: X. X. Xxxxxx
AGREEMENT FOR PEAKING GAS SERVICE (PGS)
EXHIBIT B
OCTOBER 7, 1997
PGC FEE: CONTRACT YEAR: OCTOBER 1, 1996 THROUGH SEPTEMBER 30, 1997
PAYMENT SCHEDULE: OCTOBER, 1996 $ 80,862.50
November 80,862.50
December 80,862.50
January, 1997 80,862.50
February 80,862.50
March 80,862.50
April 80,862.50
MAY 80,862.50
June 0.00
July 0.00
August 0.00
September $ 80,862.50
------------
Total Paid Contract Year 1996-97 $ 727,762.50
Total Due Contract Year 1996-97 $ 708,894.44
------------
CREDIT $ 18,868.06
CONTRACT YEAR: OCTOBER 1, 1997 THROUGH SEPTEMBER 30, 1998
Payment Schedule: October, 1997
PREVIOUS YEAR'S CREDIT $18,868.06
Payment 40,206.48
-----------
$ 59,074.54
NOVEMBER 1, 1997 THROUGH SEPTEMBER 30, 1998 59,074.54 PER MONTH
Total Contract Year $708,894.44
Contract Year: October 1, 1998 through
September 30, 1999 per month $ 59,074.54
Total Contract Year $708,894.44
Contract Year: October 1, 1999 through
September 30, 2000 per month $ 59,074.54
Total Contract Year $708,894.44
Contract Year: October 1, 2000 through
September 30, 2001 per month $ 59,074.54
Total Contract Year $708,894.44
